By 1869, the transcontinental railroad is finished, the Civil War debt is refinanced, and the business that made Jay Cooke reach the pinnacle of private banking in the US is disappearing. He had spent the war building something nobody had built before: a retail distribution machine that sold Union bonds to farmers, mechanics, and merchants. He had created the template for war financing that would inform government playbooks for the next 100 years, and it made him the best known banker in America. But by focusing on that, he had missed the banking business for the major railroads that were booming in financial markets.

As the government financing business shrinks and excitement builds over the completion of the Union Pacific and Central Pacific linking New York to California, Cooke turns to the Northern Pacific transcontinental railroad. The structure is elegant on paper but the project combines massive capital needs with a speculative vision on an unprecedented scale.

This is the perfect story to answer the question of what happens when enormous capital funds transformative infrastructure ahead of the demand that must eventually pay for it.

Chapters

(05:01) Jay Cooke in Philadelphia, 1839 as a young banker

(11:51) The retail distribution in Pennsylvania

(16:38) The financier of the Civil War

(22:56) Jay Cooke looks for non-government business after the war

(30:19) The Northern Pacific comes calling

(36:13) Jay Cook signs a deal with the Northern Pacific

(45:47) Harris Fahnestock, Cooke’s partner, warns him about funding the Northern Pacific

(50:36) Jay Cooke & Co. almost fails on October 1872

(56:10) Fahnestock closes the New York office and triggers the Panic of 1873

(59:15) The realization of a vision

References

Jay Cooke, Private Banker by Henrietta Larson (link)

1873: The Rothschilds, the First Great Depression, and the Making of the Modern World by Liaquat Ahamed (link)

Jay Cooke’s Gamble: The Northern Pacific Railroad, The Sioux, and The Panic of 1873 by M. John Lubetkin (link)

Panic on Wall Street: A History of America’s Financial Disasters by Robert Sobel (link)

Sponsors

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Note: this show is for informational purposes only and isn’t investment advice. Backtest hosts and guests may have investments in the companies discussed.